Posted!

Join the Nation's Conversation

Obama to nominate Janet Yellen for Fed chief

Paul Davidson, USA TODAY
8:42 a.m. EDT October 9, 2013

Janet Yellen, President Obama's nominee to become Federal Reserve Board chairman, is sworn in before testifying before the Senate Banking Committee on Nov.14 on Capitol Hill in Washington. (Photo: Jacquelyn Martin, AP)

Members of the media photograph Janet Yellen, left, as she prepares to testify at her confirmation hearing before the Senate Banking Committee in the Dirksen Senate Office Building in Washington. If Yellen is confirmed she will succeed Federal Reserve Board Chairman Bernanke after his term ends in January 2014. (Photo: Jim Lo Scalzo, epa)

Janet Yellen, vice chairman of the Federal Reserve Board of Governors, talks with Sen. Charles Schumer, D-N.Y., at the Hart Senate Office Building on Nov. 7 in Washington. Yellen has been meeting with senators since she was nominated Oct. 9 by President Obama to replace Federal Reserve Chairman Ben Bernanke. (Photo: Chip Somodevilla, Getty Images)

Janet Yellen, vice chairman of the Board of Governors of the Federal Reserve, left, and outgoing Federal Reserve Chairman Ben Bernanke, right, listen as President Obama nominates Yellen to be the new leader of the Federal Reserve in the State Dining Room of the White House. (Photo: Charles Dharapak, AP)

Vice President Al Gore, left, trade representative Charlene Brashefsky, President Clinton and Council of Economic Advisers Chairwoman Janet Yellen conduct an April 1, 1997, news conference about the state of the economy in the Rose Garden at the White House in Washington. (Photo: Ruth Fremson, AP)

Janet Yellen, president and CEO of the Federal Reserve Bank of San Francisco, speaks about foreclosures to the Bay Area Council Outlook Conference on April 16, 2008, in Alameda, Calif. (Photo: Paul Sakuma, AP)

Janet Yellen, vice chair of the Board of Governors of the Federal Reserve System, places her name plate at her seat at the International Monetary Conference on June 3 in Shanghai. President Obama has selected Yellen to succeed Ben Bernanke as chairman of the Federal Reserve. (Photo: Eugene Hoshiko, AP)

Story Highlights

President Obama is expected Wednesday to nominate Federal Reserve Vice Chair Janet Yellen to lead the central bank, elevating her to the world's most powerful economic post just as a political showdown in Washington is propelling the nation toward a possible economic crisis.

If confirmed by the Senate, Yellen, 67, would become the first woman to head a major central bank. The Fed's vice chairman since 2010, she's known for favoring policies promoting low unemployment as a chief concern of the Fed rather than controlling inflation.

Yellen is expected to face resistance from Republicans in Congress worried that the Fed won't do enough to prevent future high inflation. But she enjoys broad support among Democrats in the Senate and is expected to be confirmed.

Yellen would succeed Fed Chairman Ben Bernanke, who is stepping down when his second four-year term ends Jan. 31. He is credited with playing a chief role in leading the nation out of the worst economic downturn since the Great Depression.

Yellen was raised in a working-class neighborhood in Brooklyn, developing her insights about unemployment long before she became a career economist. Her father, a doctor, and mother, an elementary school teacher who quit to raise their two children, lived through the Great Depression.

She majored in economics at Brown University, drawn to the field by a desire to help people. She joined the Fed as an economist in 1977 and there met her future husband George Akerloff, who won the 2001 Nobel Prize in economics. The couple collaborate frequently on economic papers.

Yellen taught economics at the University of Berkeley before returning to the Fed as a board member in 1994. She built a reputation for being unusually prepared, delivering meticulously crafted remarks even while other board members spoke off the cuff.

With her short white hair, an easy smile and infectious laugh, Yellen comes across as mild-mannered, but she didn't hesitate to stand up to the sometimes autocratic former Fed chairman Alan Greenspan.

In 1996, she argued against his proposal to drive inflation to zero, saying some inflation is good for employment. Later that year, she grew nervous about rising prices and unsuccessfully urged Greenspan to raise short-term interest rates.

Yellen headed President Clinton's Council of Economic Advisers from 1997 to 1999, then returned to teach at Berkeley before taking the helm of the San Francisco Fed in 2004. As banks wobbled amid bad loans, Yellen prodded various bank divisions to work more closely and share information, says Stephen Hoffman, her chief banking regulator at the time.

"This was a period when there wasn't a whole lot of appetite for" cracking down on banks, he said. But he said Yellen tried to tell Washington policymakers of her concerns and urged her underlings "to get (banks) to see the risks they had."

"She actually believed in the importance of regulating and supervising financial institutions and that market forces weren't going to be enough," he said.

Hoffman also praised Yellen's management style, describing it as "firm" but inclusive. "You got the message," he said. "She tried to get everyone to bring forth what they had to contribute and to know the contribution was highly valued," he said.

If she is confirmed, a Yellen-led Fed could be expected to continue current Fed policies. Since the 2008 financial crisis, the Fed has used $3 trillion in bond-buying to pump an extraordinary amount of cash into the economy and hold down long-term interest rates.

She would face the challenging task of shrinking the Fed's holdings and raising interest rates, allowing the economy to stand on its own. The Fed must make these moves rapidly enough to head off high inflation as the economy gains momentum, yet it must not act so quickly that it hurts the recovery. Many economists think Yellen will wind down the stimulus measures gradually.

Yellen, who headed the San Francisco Fed when that region was at the vortex of the housing boom and bust, is also viewed as a regulator who will take a tough stance against the kinds of bank excesses that led to the crisis.

Along with Bernanke, she has been a key architect of the Fed's $85 billion in monthly purchases of Treasury bonds and mortgage-backed securities. The Fed surprised financial markets last month by not reducing those purchases, citing the potential damage to the economy that could come from Congress' battles over the budget and raising the government's debt ceiling. Those concerns have been realized with the ongoing eight-day-old government shutdown. Even worse, a failure by Congress to raise the debt limit by Oct. 17 could hurtle the nation back into a recession and further delay any reduction in Fed stimulus.

Yellen also has played a leading role in other recent Fed initiatives. Those include setting a formal 2% target for annual inflation and keeping short-term interest rates near zero at least until the unemployment rate, now 7.3%, falls to 6.5%. And she has joined Bernanke in establishing more open communication with the public and the media so bond yields and other market indicators more accurately reflect Fed intentions.

Like Bernanke, Yellen has a collegial style that's considered conducive to mustering consensus on a Fed policymaking committee with sharply diverse views on how quickly to rein in the easy-money programs.

"Janet has a talent for being able to disagree without being disagreeable," says Alan Blinder, who served with Yellen on the Fed's board in the 1990s.

Yellen also is known for being perhaps the most prescient Fed policymaker. When she headed the San Francisco Fed in 2007, she warned of the imminent housing crash.

"A big worry is that a significant drop in house prices might occur in the context of job losses, and this could lead to a vicious spiral of foreclosures, further weakness in housing markets, and further reductions in consumer spending," she said at a September 2007 Fed meeting.

In a summer 2009 speech, Yellen correctly predicted that "the pace of the recovery will be frustratingly slow." She was recently assessed by the Wall Street Journal to be the most accurate of 14 Fed policymakers based on predictions between 2009 and 2012.

In the two-species taxonomy of Fed policymakers — "hawks" who worry about high inflation vs. "doves" who focus on high unemployment — Yellen is considered more dovish than Bernanke.

During the recovery, Yellen has placed more emphasis on lowering unemployment, even if that means letting inflation run above the Fed's annual 2% target for a period to make up for slow growth early in the recovery. Under an approach she has advocated, short-term interest rates could stay near zero even after unemployment reaches 6.5%.

The path to Yellen's nomination was cleared last month when former Treasury Secretary Larry Summers, Obama's top choice, withdrew from consideration in the face of opposition from Senate Democrats.

Some economists say Yellen may move too slowly to head off inflation. In comparing Yellen to Summers, Vincent Reinhart, chief U.S. economist of Morgan Stanley and former head of monetary affairs at the Fed, said: "Yellen is more of a source of inflation risk for markets."

Still, Yellen has voted for each Fed hike in interest rates during her two tenures at the central bank.

Former Fed board member J. Alfred Broaddus, a hawk who often disagreed with Yellen on policy matters in the 1990s, says her philosophy "doesn't concern me unduly" even though inflation will become a bigger threat as the economy heats up.

Yellen, he says, never had to cope with rapidly rising wages and prices as he did as a Fed policymaker in the 1970s. "If she had, there's no reason to think she wouldn't have joined the rest of us in fighting it."